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Fighting COVID-19: Who is Eligible to Benefit from the CARES Act

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Small business owners and employees aren't the only ones to get new opportunities to take advantage of tax breaks included in a bipartisan coronavirus stimulus package recently passed by Congress. 

Commonly referred to as CARES ("The Coronavirus Aid, Relief, and Economic Security Act"), the bill provides more than $2 trillion in federal government support to companies large and small. It also includes additional unemployment benefits for those who've lost their jobs due to the coronavirus (COVID-19) pandemic and direct payments to many taxpayers. 

The act also provides retirees with some additional perks. While much of CARES is designed to help blunt the economic impact of the virus over the next several months, a provision also waives 2020 required minimum distributions (RMDs) for personal Individual Retirement Accounts (IRAs). It also applies to workplace retirement savings programs like 401(k)s and 403(b) plans. 

Here are some of the key elements of the CARES Act that taxpayers should consider as part of a holistic financial plan, which is available on a complimentary basis to every IFA client. 

Direct Stimulus Payments

As it stands now, single filers with 2019 adjusted gross incomes (AGIs) not exceeding $75,000 are set to receive a one-time $1,200 stimulus payment. 

From that point, such U.S. Treasury disbursements are set to drop by $5 for every $100 of income up to an eligibility limit of $99,000. Meanwhile, married couples who filed jointly with AGIs up to $150,000 are set to get twice that amount -- up to $2,400. Again, payments fall by $5 per every $100 of income with a cutoff point at $198,000 in 2019 joint income. 

A taxpayer who filed as a single head of household with 2019 AGIs of $112,500 or less is eligible under the act for a $1,200 stimulus check. Payments go down from there by $5 for every $100 of income before reaching a maximum level of $136,500.

Besides those checks, CARES provides for a payment of $500 per qualifying child who's 17 years old or younger. For specific details of this provision, however, we strongly recommend you consult a qualified tax professional such as a certified public accountant (CPA) or enrolled agent. 

For taxpayers who haven't filed their 2019 returns yet, officials will base eligibility on the previous year's filings. 

Required Minimum Distributions (RMDs)

Like in 2009 after the global financial crisis, taxpayers who were scheduled to take RMDs in 2020 will get a break from being required to make such distributions. 

The act makes skipping 2020 RMDs optional, though. For those living on a fixed-income and older than age 72, RMDs might still make sense in terms of maintaining a necessary stream of income to cover household budgeting needs. By not taking your RMDs, however, those assets can remain in your portfolio for future growth. This could be potentially beneficial to your longer-term investment strategy. 

For those who've suffered financial hardship as a result of the coronavirus outbreak, additional tax breaks are included in the act. Taxpayers aged 59 1/2 years and younger can take a distribution from a traditional IRA and/or qualified retirement plan account up to $100,000 in 2020 without being subject to a 10% excise tax. Although those distributions will be counted as income, taxes assessed on those distributions by the IRS can be spread over 2021 and 2022.  

The CARES Act also permits anyone diagnosed or harmed by the COVID-19 virus to suspend for a year loan payments taken within six months of the law's enactment (March 27, 2020) from workplace-related retirement accounts like those held through 401(k) and 403(b) plans. 

Payroll Protection Loans

Besides these other tax provisions, the act also creates a new payroll protection loan program that business owners are now able to apply for through their local banks.

This can be a significant benefit for business owners since such a CARES provision allows loans up to $10 million for firms with COVID-19 related issues. In addition, if these loans are used to cover certain operational expenses, the entire amount borrowed can be forgiven. 

Another factor to keep in-mind: Such payroll protection loans are being backed by the Small Business Administration. That means these loans won't require personal guarantees or collateral.

For more details, you can check here on the SBA's site. 

Unemployment Benefits

The act extends unemployment support to those impacted by COVID-19 and includes those who are self-employed and part-time workers. 

How much you're eligible to receive depends on state benefits, which differ greatly by where you live. According to the New York Times, the maximum unemployment benefit in California is $450 a week and in New York it's $504 a week. With CARES, another $600 a week in federal money is added to the mix. 

All of these issues addressed above are dependent on your unique tax situation. In general, though, understanding what benefits are available through CARES is worth reviewing. 

The act is written to cover those who've been diagnosed with the coronavirus as well as taxpayers who've been quarantined, furloughed, laid-off or suffered reduced hours because of circumstances related to the virus. 

In many cases, parents who've experienced an inability to work due to COVID-19 related childcare issues also fall under the act's benefits coverage. It also covers business owners who've had to cease operations or reduce their work hours. 

The IRS has set up a special site to help answer taxpayers' questions about stimulus payments, RMDs, unemployment insurance and other CARES-related benefits. It can be found by clicking here

If you have additional questions about the CARES Act, or I can assist you in any tax-related matters, please feel free to contact me at IFA Taxes. My number is: 888-302-8765. Or, you can email me directly at: [email protected]

John Dahlin is the Director of Tax at IFA Taxes, a division of Index Fund Advisors Inc. He is also a certified public accountant (CPA) with more than a decade of experience in public accounting and tax planning for individual taxpayers, business owners and corporations. 

This is intended to be informational in nature and should not be construed as tax advice. As a division of Index Fund Advisors, Inc., IFA Taxes provides a wide array of tax planning, accounting and tax return preparation services for individuals and businesses across the United States. IFA Taxes does not provide auditing or attestation services and therefore is not a licensed CPA firm. IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. Federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter herein.
Certified Public Accountant (CPA) is a license to provide accounting services to the public awarded by states upon passing their respective course work requirements and the Uniform Certified Public Accounting Examination.